THIS BLOG RATES THE S&P 500 BUY/SELL/OR HOLD EACH DAY WITH 2-GOALS FOR LONG TERM INVESTMENTS: (1) PRESERVE CAPITAL (2) BEAT THE S&P 500.
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Wednesday, February 17, 2016

PRODUCER PRICE INDEX (24/7 Wall Street)“Headline PPI rose by 0.1% in January… Core PPI was up 0.4% on the
monthly change and was up by 0.6% on the year-over-year measure.” Story at…http://247wallst.com/economy/2016/02/17/producer-price-index-brings-minor-smell-of-inflation/My cmt: CPI (due Friday) will be more important. For
charts on trends see Advisor Perspective at…http://www.advisorperspectives.com/dshort/updates/PPI-Headline-and-CoreHOUSING STARTS (Reuters)U.S. housing starts unexpectedly fell in January likely
as bad weather disrupted building projects in some parts of the country, in
what could be a temporary setback for the housing market…Though
residential construction accounts for a small fraction of gross domestic
product, the decline in starts at the beginning of the year suggests that an
anticipated rebound in economic growth will be modest.” Story at…http://www.reuters.com/article/us-usa-housing-jan-idUSKCN0VQ1KKINDUSTRIAL PRODUCTION (Bloomberg)“U.S. manufacturing output rose in January by the most
since July 2015, a sign the industry was starting to stabilize at the beginning
of the year. The 0.5 percent advance at factories, which make up 75 percent of
all production, followed a 0.2 percent decrease the prior month…” Story at…http://www.bloomberg.com/news/articles/2016-02-17/manufacturing-output-in-u-s-rises-by-most-since-july-2015FOMC MINUTES “Federal Reserve policymakers worried last month that
tighter global financial conditions could hit the U.S. economy and considered
changing their planned path of interest rate hikes in 2016…However, they agreed
it would be premature to change their outlook for the U.S. economy…” Story at…http://www.cnbc.com/2016/02/17/fed-minutes.htmlMARKET REPORT / ANALYSIS-Wednesday, the S&P 500 was up about 1.7% to 1927 at
the close.-VIX fell about 7% to 22.31.-The yield on the 10-year Treasury rose to 1.82%.Regarding why the ongoing rally is suspect, one of the
reporters on CNBC did some volume-analysis of the ongoing rally this
morning.The disappointing thing is that
they trot out the same bogus, volume-analysis after every bottom.I’m an amateur, but these guys are really amateurs. His thesis was that low
volume in a number of ETF’s, including the S&P 500 ETF (SPY), indicated
that the rally underway was questionable. This analysis is completely wrong.After a bottom, there is ALWAYS low volume when the markets reverse upward.Just look at the data.The reason is simple – traders jump in to
drive the price up, but investors don’t believe in the bottom and wait. The
result is low volume after a bottom.Now I do happen to agree with the conclusion – I am skeptical
about the bottom too, but not because of volume. I don’t think we have seen a
durable bottom because of the following:-The last extreme-high, down-volume day was more than a
month ago.Further, the recent low was
not a statistically-significant day in my system (indicated by a high standard
deviation in price-volume) nor has there been one since mid-January. Every
correction since 2008 has finished with a statistically-significant, down-day
at the bottom, or no more than 3-days prior to the bottom. (I’m too lazy to
pull out my older stats prior to 2008.) This is true for relatively minor
pullbacks too.-There has not been a day with an extreme low percentage
of stocks advancing since the higher-low last September; before that there was
one at the August low.-VIX was 28 at the recent low. It was 36 at the August
low.-At the bottom, market internals did not appreciably
improve.These stats show a lack of capitulation along with a lack
of improvement at the bottom, so this recent bottom will probably need to be
retested. On the other side…Bull arguments:-High up-volume today (Wednesday) is a positive for the
market, but as noted above, there was no high down-volume day that would have
suggested a bottom, so I place little credence in this argument.-There was a new-high/new-low reversal after the bottom,
but in the past 8-years, only about 20% of new-high/new-low reversals have
occurred at correction bottoms. Others have occurred as much as 2-months before
a correction bottom.(I didn’t go back
thru the 2007 crash stats, but I bet the results are similar.)-Smart money was very active buying late in the day
again, Wednesday, so the traders remain bullish.Still, the ongoing rally looks like an oversold bounce to
me. The market reached my upward target of 1920 so quickly that it is likely to
get higher and may even get to Art Cashin’s 1950 level noted below.

ARE YOU A BELIEVER IN THISRALLY (CNBC)

"It will prove itself if it gets above 1,950. For
now we've taken a healthy leap forward. As I say, it's broad, so you've got to
appreciate that, but I won't declare 'in' until we talk about 1,950," –
Art Cashin on CNBC's "Squawk on the Street."http://www.cnbc.com/2016/02/17/cashin-i-wont-believe-in-the-stock-rally-until-the-sp-hits-1950.htmlMONEY TREND & SHORT TERM TRADINGThe smoothed version of the Money Trend remained UP Wednesday.
I sold my long position since my 1920 the Index met my
target level of 1920; perhaps I sold too soon. Oh well…MARKET INTERNALS (NYSE DATA)(I am getting data from various sites. Some of the
numbers are subject to minor revision so the previous day’s numbers may be
slightly different than reported yesterday.)The 10-day moving average of the percentage of stocks
advancing (NYSE) is 51.7% Wednesday vs. 45.5% Tuesday. (A number above 50% is
usually GOOD news for the markets. On a longer term, the 150-day moving average
of advancing stocks rose to 48.7%. A value below 50% indicates a down trend.
The McClellan Oscillator (a Breadth measure) improved, and switched to positive
on the day. In a positive reversal, New-highs outpaced New-lows. The
spread (new-highs minus new-lows) was +4 Wednesday. (It was -34 Tuesday.)The 10-day moving average of the change in spread
rose to +6. In other words, over the last 10-days, on average; the spread has INCREASED
by 6 each day. Market Internals (based on
10-dMA) switched to positive on the markets.

Market Internals are a decent trend-following analysis of
current market action, but should not be used alone for short term trading.
They are usually right, but they are often late.They are most useful when they diverge from
the Index.In 2014, using these
internals alone would have made a 9% return vs. 13% for the S&P 500 (in on
Positive, out on Negative – no shorting).Of course, few trend-following systems will do well in an extreme
low-volatility, nearly straight-up year like 2014.NTSMWednesday, Price was positive; VIX, Volume and &
Sentiment indicators were neutral. The long-term NTSM indicator is HOLD. (The
first SELL signal of this cycle was 18 Dec 2015 and there has not been a BUY
signal since.) There was a big improvement in long term indicators.If
markets continue to improve, there could be a buy signal that would change my
opinion on the markets in the next several days.

MY INVESTED STOCK POSITION:

TSP (RETIREMENT ACCOUNT – GOV EMPLOYEES) ALLOCATIONOn 30 Dec I reduced my invested position in my retirement
account to 30% invested in stocks thru an S&P 500 Index fund (“C”-fund in
the TSP). Friday, 15 Jan I reduced stock allocation to zero in long-term
accounts. That leaves 100% invested in cash yielding about 2%.Short-term bonds would be OK too. The S&P 500 peaked in Mid-May and has not been able
to break higher in the past 9-months. That looks like a top to me. See “Why the
Bull Market May be Dead” in my 14 December blog at…http://navigatethestockmarket.blogspot.com/2015/12/stocks-are-topping-time-to-sell-hussman.htmlEven if that is true, there could still be a rally for 2
or 3-months.

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About Me

I am an engineer with a lifelong interest in "playing with numbers" so what could be more fun than trying to develop a system that beats the stock market? Well, lots of things, but I decided to do this anyway.
While I am not a finance-professional, or professional investor, I have developed some skills.
I competed in two CNBC Million Dollar Portfolio contests finishing in the top 4% in 2008 (34,320th of 800,000) and the top 0.1% (448th of 500,000) in 2009. More importantly, I managed to sell out of my retirement accounts at or near the top in 2000 and 2007 and bought close enough to the bottom that I didn’t lose too much sleep. (Even Bill Gates lost SOME sleep.)
I hope that my thoughts will help you achieve your investing goals. Please remember that my ideas are free and there may be times when my ideas are worth less than what you paid.